While family businesses can achieve great economic prosperity and often outperform their non-family firm counterparts, authorities continue to cite statistics suggesting that approximately 70 percent of family businesses fail to successfully complete a transition to the second generation, and a staggering 90 percent of family businesses fail to complete a transition to ownership by the third generation. The commonality of family business struggles is often expressed through the well-known proverb, “shirtsleeves to shirtsleeves in three generations” – a proverb that seems to have a counterpart in every country with family businesses.

While the accounts of what compromises these statistics will often only be known to the family members and their advisors, many of whom serve under professional obligations of confidentiality, there are nevertheless seemingly endless published accounts of prominent families in business together, including the Gucci, Guinness and Gallo families, whose infighting has become known through the public litigation process.

In spite of endless seminars, articles, websites and other information designed to help families in business together, not much has changed and far too many families, many of whom expend substantial resources designed to allow them to secure the most advanced contemporary planning techniques, continue to experience dysfunction – and the “failure statistics” cited above appear to remain as predictable as they are consistent.

We believe the failure of current planning strategies results primarily from professional advisors giving disproportionate attention to helping families answer two questions inextricably tied to their wealth: first, “who shares in the wealth?” (which we refer to as stage 1 planning™) and second, “how much do they get?” (which we refer to as stage 2 planning™).

Some families in business together have engaged family business consultants, professionals with varying academic degrees and professional experience. Family business consultants often use tools like codes of conduct, mission statements and family constitutions, and help to professionalize governance (which we refer to as stage 3 planning™).

Taking it a step further, which we are introducing as stage 4 planning™ – now widely used by the largest companies in the world – considers and applies new insights from science, particularly from the fields of positive psychology and social neuroscience.

An increasing amount of research is being undertaken at some of the top colleges and universities in the world to examine, with scientific rigor, factors that influence how individuals and organizations flourish – and languish. And some of the world’s greatest companies – including Google, Amazon, Zappos and many others – have been increasingly driven to apply those insights and others that they uncover from their experience. Insights include best practices for common business procedures, including how to start a meeting, how to ask constructive, open-ended questions, how to listen thoughtfully and how to practice empathy.

While stage 4 planning™ strategies have gained increasing recognition in non-family business settings, they remains a virtually undeveloped planning paradigm for family businesses. In recognition of the continuing value of traditional planning strategies, but understanding the importance of insights from science, family businesses would be well advised to integrate both the “hard” and the “soft” issues to provide a more holistic approach to family business planning.

In spite of their importance – to our economy , to our workforce, to our culture, and to families – the legal profession has given woefully insufficient attention to the unique planning needs of family owned businesses. For example, in our informal survey, we were unable to identify any law school whose curriculum includes a course devoted to family business. Another informal survey of resources made available to attorneys through bar associations, including publications and continuing legal education, reveals a principal emphasis on estate planning , tax planning , insurance planning, and buy-sell agreements. While we acknowledge the importance of each of these subjects, their primary focus is on money – how to maximize its value for family members by minimizing federal and state taxes – not on people: strategies for helping individuals, teams, and organizations learn to better able to enjoy life, succeed in business, work together effectively – to flourish. The emphasis on “financial planning” without a comparable attention to “people planning” has come at a great cost.

While these costs are impossible to measure accurately due to the private and confidential nature of many family business affairs, authorities continue to cite statistics suggesting that approximately 70% of family businesses fail to successfully complete a transition to the second generation, and a staggering 90% of family businesses fail to complete a transition to ownership by the third generation. The commonality of family business struggles is often expressed through the well-known proverb, “shirtsleeves to shirtsleeves in three generations,” – a proverb that seems to have a counterpart in every country with family businesses. While the accounts of what compromises these statistics will only be known to the family members and their professional advisors who serve under obligations of confidentiality, there are nevertheless seemingly endless published accounts of prominent families, including Gucci, Guinness, and Gallo, whose infighting has become known through the public litigation process.

Beyond what these inherently imprecise statistics and anecdotal published reports reveal is the tragic human toll taken as a result of family business dysfunction: parents, children and siblings who no longer talk to each other, sometimes as a result of intra-family litigation. Indeed, we suspect that any attorney who works with family businesses on a regular basis has his or her own personal experience involving family business dysfunction and crisis.

Mr. Friedman will give a presentation titled, My Brain Made Me Do It: The psychological challenges of running a small business, on Monday, June 23, from Noon to 1 pm at the American Red Cross, 50 College St., Room 309, in Rochester.

In addition to serving as the Managing Partner of Lippes Mathias Wexler Friedman, Mr. Friedman is the author of seven books, including his latest, Family Business and Positive Psychology: New Planning Strategies for the 21st Century (American Bar Association, 2013). He is a frequent lecturer on the topic of positive psychology and running family businesses and regularly contributes to articles on the subject regionally and nationally.

“Scientific advances continue to reveal what factors contribute to the optimal functioning of people, groups and organizations,” Friedman said. “I’m excited to share how some of these advances can be applied to help families in business together learn to flourish.”

There is no cost to attend this educational workshop and lunch will be provided. To reserve your space, call 585-381-2360 or email mchandler@lippes.com by June 17.